Business outlook turns to a lighter shade of grey

After suffering through a rough 2012, Canadian firms seem hopeful of a modest turnaround this year that will allow them to hire more workers and increase investments, a new Bank of Canada quarterly survey suggests.

However, the central bank’s latest business outlook survey also notes the uncertain economy continues to weigh on Canadian firms and that, while businesses expect 2013 to be better, their optimism is far from exuberant.

“Responses to the winter survey provide further indications that firms have faced a period of softness in economic conditions,” the central bank said Monday in summarizing the opinions of Canadian business executives.

“While some forward-looking indicators of business activity have moved up from the levels recorded in the autumn survey, many firms cited concerns about demand over the next 12 months, as well as pressures related to increased competition.”

The results are in line with expectations the bank will revise downward its 2.3 per cent growth forecast for this year and stick with low interest rates a while longer.

The bank survey, which canvasses the opinions of senior management at 100 firms selected to represent the Canadian economy as a whole, is regarded as among the most dependable of its kind and is used by the bank to guide its views on future economic activity.

Senior deputy governor Tiff Macklem recently hinted the bank will likely revise downward its projection for near-term growth when it issues a new outlook on the economy next week, and nothing in Monday’s report is likely to alter that view.

Monday’s report finds firms reporting that the pace of growth of sales last year tipped into negative territory for the first time since early 2010, with 35 per cent saying volumes increased at a slower pace in 2012 than the previous year, as opposed to 33 per cent who said the pace picked up.

Yet looking ahead, more firms than not said sales are expected to grow at a faster pace over the next 12 months. Forty-four per cent said they expected a pick-up this year, as opposed to 28 per cent who felt sales growth would slow, a stronger reading than three months ago.

As well, more firms 42 per cent of respondents said they expect to add employees in the next year — compared with 14 per cent who thought it would be lower. That was marginally better, on balance, than in the previous survey.

As well, there was a big jump in the outlook for investment in new machinery and equipment to boost productivity. There survey found 43 per cent of respondents expected spending in this area to increase (while 23 per cent expected it to fall), compared with a 37-29 split in the previous report.

Still, the bank says the survey results don’t constitute a high level of optimism among Canadian business executives, and that on some questions, firms continue to report weak and even deteriorating conditions.

For instance, firms in general reported less pressure to keep up with production demands and the percentage of firms reporting labour shortages also dropped.

Even on expectations of improved sales expectations, the bank said firms attribute the optimism to “pursuing new business opportunities or by adopting strategies to maintain market share,” rather than to increased demand.

“Overall, uncertainty continued to temper expectations for business activity,” the bank said.

A separate survey of senior loan officers found virtually no change in business lending conditions, although firms themselves reported a modest easing of credit conditions during the past three months.